Tax Withholding and Record-Keeping Laws Every Small Business Owner Should Know

When business is booming and you know you need to hire someone to fill the gap, it is easy to get excited. However, you cannot let that excitement cloud your judgment. There are critical employment law specifics you need to know before hiring your first employee. Some of the most critical relate to tax withholding and record-keeping requirements.

Preparing for the Hiring Phase

Before you can hire an employee, you must first obtain an employer identification number (EIN). This number is used for tax reporting purposes, and it is required for submitting certain documents to the Internal Revenue Service (IRS). You also need it to report information about your employees to the state. In addition, keep in mind that you will need to keep records of employment, tax withholding, deductible expenses, and other financial and employment-related information for a minimum of four years.

Federal Tax Requirements

Either on or before the date of hire, every employee must provide you with a signed exemption certificate, or a W-4 form, which you will then submit to the IRS. Exemptions are used to determine how much you should withhold from your employee’s wages for tax purposes. You then report the withheld amount to the IRS each year, using a W-2 form, which the employee uses to file their federal income taxes. Note that you, the employer, must submit Copy A of the W-2 to the Social Security Administration by the last day of February each year.

State Tax Requirements

Most Illinois employers are required to withhold state tax from their employees. More specifically, this requirement applies to any employer that is required (or has agreed) to pay federal income taxes. There are some exemptions, but they are few and far between. As a withholder, you must register with the Illinois Income Tax. It is also important to understand that you are still required to pay the tax to the state, even if you failed to withhold it from your employee.

Contact Our Arlington Heights Employment Law Attorneys

Hiring an employee is a multi-faceted issue, with financial, tax, and policy considerations to make. There are federal laws, state laws, disability laws, and harassment laws that must be followed. Get help ensuring you are ready to hire your first employee. Contact A. Traub & Associates for assistance. Our Arlington Heights employment law attorneys will guide and assist you throughout the process. Call 847-749-4182 and schedule your consultation today.